Universal Banking – the Task Before Sanusi

A former Central Bank of Nigeria (CBN) governor, Chief Joseph Sanusi in his time as the CBN boss canvassed for the introduction of Universal Banking in the nation's financial supermarket, little did he know that few year after his exit, the regulatory authorities would come up with the decision of reversing the practice

Chief Joseph Sanusi while explaining the working of the system, he said universal banking did not in any way imply that all banks would be doing the same things. "Rather, what it means is that each bank will be allowed to determine in which segment of the market it wishes to operate."

Universal banking which took him over two years of calls before its approval means that banks will no longer have to specialize either as merchant (or wholesale) banks or commercial bank but one stop shop.

Managing Director of the then Standard Trust Bank Ltd, Tony Elumelu, noted that Universal banking is the system whereby all financial institutions are allowed to perform an array of functions and services that they are best suited for.

Also managing Director of the then Fountain Trust Bank Ltd, Mr. Segun Ama, said the concept allows a bank to decide its own portfolio of businesses, and appropriate service delivery channels and infrastructure, yet within an applicable regulatory framework. To him, the concept refers to the combination of commercial banking and investment banking, adding that it is a supermarket for both wholesaler and retailer financial services as it offers wide range of financial services.

Ama also quoted Sanders and Walter who in 1994 defined universal banking as "the conduct of a range of financial services comprising deposit taking and lending, trading of financial instruments and foreign exchanges (and other derivatives) underwriting of new debt and equity issues, brokerage, investment management and insurance

Contributing, the World Bank argues that universal banking "also involves close links and extensive consultations between banks and industry.

Daily Champion gathered that Germany has a thriving universal banking culture as banks are allowed to offer all kinds of financial services, and even hold stock in non-financial firms and have voting rights in the governance of the companies.

Also, in Britain, banks offer a full range of financial services to corporate and personal customers, commercial and investment banking, securities trading and brokering, derivatives trading, underwriting, fund management and insurance. There, big banks usually referred to as "bancassurers" have embraced multipurpose functions through acquisitions and take-over of already established institutions in specialized areas of interest.

The Banking Act of 1933, in the US, also known as the Glass-Steagall Act, created a distinction between commercial banks and investment banks. However, late 1999 witnessed the repeal of the act which now allows universal banking in its real sense.

But the planned reversal of the universal banking structure by the Central Bank of Nigeria with the aim of creating room for pro;liferation of many banks, experts said may lead to disappointments as virtually all the 24 banks in Nigeria had invested in the business.

It was disclosed that the apex bank's decision to phase off universal banking may not be the best approach towards actualizing good corporate governance in the system

The rationale behind universal banking is the availability of one stop shop, which if handled properly would be good for the economy, sources said the problem in the system was lack of adequate regulation, adding that the regulators lacked the power to effectively monitor the movement of monies from the deposit money banks and their subsidiaries, stressing that the CBN lacked the competence required to deal with the problems associated with system.

It was further disclosed that major problem found in universal banking is poor corporate governance, also strict adherence to the ethics of banking, many said may have averted the problems but the operators and the bankers choose to deviate from the norm.

It was also said, what worked in other countries may not work in Nigeria as a result of the complexity of the nation, stressing that that the reform in the nation's banking system should be aligned with the reform of the entire economy.

CBN recently said Universal Banking will be phased out within the next 24 months adding that it is for the unbundling of the banking sector to enhance specialization and deepening of the sector.

According to the apex bank under the unbundling process yet to be concretized and finalized for implementation, will no longer be permitted to operate or venture into other financial services sector such as Mortgage institutions, Insurance, Microfinance and other subsidiaries within a group.

Director, banking supervision, Mr. Samuel Oni explained that the model to be introduced, monitored and strictly implemented is in line with international best practice and International Financial Reporting Standards (IFRS), which he said would safe guard depositors funds from being plunged into high risk areas without adequate protection.

The Director of Banking supervision regretted that the current practice of universal banking which made it possible for banks to undertake operations within the group has exposed the financial institutions to high operating risks, and thus the need to adequately regulate to insure safety of depositors'